J.M. Van Brabant - Böcker

The political revolutions since mid-1989 in the eastern part of Europe have ushered two ambitions into the purview of the new political leaders of most transition economies: pluralistic political democracy and a market economy based overwhelmingly on private property and self-interest, with a minimal role for the state. Whereas it may be appropriate to confine the state's role in economic affairs to the provision of public goods and ensuring property rights, once a fully-fledged market economy in these countries is functioning, the path leading up to fulfilling this ambition for now, will have to be steered by the state, provided governance capabilities can be mustered within these countries, and perhaps with international assistance. "Industrial Policy in Eastern Europe: Governing the Transition" argues the urgency of mobilizing whatever governance capabilities are available to steer the transformation processes towards positive growth, including through proper use of state-owned assets for as long as they cannot be privatized or fully transformed into parastatals, like in Western Europe.

The European Union faces a double dilemma - deepening versus widening. Broadening the Union toward the countries of Eastern Europe poses unprecedented economic, political, social, security, and other problems. The Union can hope to deal with them only if a successful revision of the Maastricht Treaty can be negotiated by the end of 1997. Even then, however, bringing the economies in transition into the Union cannot be taken to be a straightforward matter at all. Apart from the budgetary implications of Eastern accessions, a case can be made that the transition economies individually and as a group are not likely to be able to discharge the obligations of membership and profit from the core benefit of the single market at any time in the near future, certainly not by the year 2000. This volume traces the policy dilemmas facing the Union, the topics around which the 1996 Intergovernmental Conference has been crystallizing, the policy dilemmas of monetary union, the lessons to be drawn from assisting the transition economies, the core issues of accession negotiations, and the adoption of a pre-accession strategy in the interest of the potential members as well as the present Union.It is also argued that, in the process, the assistance efforts to economics in transition that cannot join any time soon or others that will not join should be modulated in the same spirit in order to better reflect the interests of the Union.

Bringing the eastern European economies in transition (defined more precisely in the Introduction) under the economic, political, and secu­ rity umbrella of the European Union (ED) has been an ambition of many of these countries from the very start of the so-called annus mirabilis in 1989. The road to gratification of this aspiration since then has been rather bumpy, however one wants to look at recent events. Indeed, since 1989 the relationship between the EU and the economies in transition has been ebbing and flowing with the evolution of two main strands of policy stances in the EU. One has been deep skepticism about bringing these countries into the Union at all in any foreseeable future. This in spite of the fact that, after long hesitation, in mid 1993 the EU Member States committed themselves eventually to explore accession with selected transition economies, as well as Cyprus and Malta. The other has been their evolving attitude toward their own integration endeavors. Hence the dilemmas, in the EU's parlance, of the "deepening versus widening" conundrum. That indeed constitutes the paramount issue addressed in the present investigation.

This volume in essence continues my recent contributions towards building up a better understanding of the wide range of obstacles besetting the transitions away from administrative planning in the former communist regimes in the eastern part of Europe. It is self-contained, however. As such, it specifically addresses issues revolving around how best to govern economies, and indeed societies more generally, that are undergoing fundamental structural transfor­ mation, and whether industrial policy can facilitate progressing with the vexing transformations that will have to be enacted over a protracted period of time. Because of the bewildering variety of hindrances that the managers of the transition have been confronted with, many of which were not even contem­ plated when the programs were first designed, regaining a measure of good governance, including notably good economic governance, is critical in formu­ lating a positive pOlitical economy of transition. Arguably most critical is steering the processes of destruction and creation-not 'creative destruction' in the Schumpeterian sense. In some cases, this requires reallocating decom­ missioned resources, both capital and labor, to new activities. Changing rules on the utilization of existing assets is evidently at the core of what the transi­ tion towards market-based economic systems should be all about Very often, however, this requires establishing new economic activities from domestic and foreign savings.

This volume is meant to be a modest contribution to the ongoing debate about the transitions away from the administrative planning environment typical of the former communist regimes. The central subject matter is a fairly special one, namely the privatization of these economies together with the restoration and effective monitoring of property rights. These are paramount tasks of the ongoing transformations once progress toward pOlitical democracy is secured. Though I would not allot divestment of existing state-owned assets the kind of pivotal importance that some observers reserve for it, changing rules on the utilization of these assets is evidently at the core of what the transition toward market-based economic systems should be all about. Rather than examining the entire range of issues that surround the controvery on privatization, this volume is primarily concerned with the economics of taking the state out of the decision making about existing assets. Among the several aspects of this discussion three stand out. One is the establishment of clear property rights. This is fundamental to minimize trans­ action costs in an environment where decisions will increasingly be taken by independent economic agents acting on their own account. Second, I look only incidentally at the various angles of creating capital markets, particularly for existing assets, in these economies.

This book is designed as a modest contribution to the ongoing deliberations about how to ease the fairly tight constraints on the external payments of many countries of the eastern part of Europe. In the fIrst instance, this inquiry is addressed to those that have embarked on wide-ranging systemwide reforms. External constraints have been markedly hampering the introduction of market­ oriented economic mutations, thereby raising the cost of transition far above levels expected at the outset of the present wave of uniquely restructuring the countries involved. I explore here several angles of this discussion. But three stand out. One is the disintegration of the postwar framework for economic cooperation in that part of the world. Another is the disarray brought about by incisive economic transformations in the area. Finally, various national, regional, and international interest groups are at work there, hoping to mold somehow the drift of the reform, or at least key components thereof, in their own "image. " In the process it is often forgotten, as Ralf Dahrendorf (1990, p. 41) so pointedly remarked that "[ a]ll systems mean serfdom, including the . natural' system of a total . market order' in which no one tries to do anything other than guard certain rules of the game discovered by a mysterious sect of economic advisers.

This compact volume is meant as a modest contribution to the ongoing debate on how to transform in particular the radically reforming Eastern European economies into more productive sociopolitical organizations. Although my main focus here is on the economics of reform and east-west assistance, I have tried to embed the multiple technical aspects of restructuring such a resource alloca­ tion into the context of remaking Eastern Europe. That the volume coincides with the seminal transformations of the communist countries of Eastern Europe is, of course, not fortuitous. But I shall have much less to say about the politi­ cal transitions from communism to parliamentary democracy, except the ways in which the latter may bolster or hinder the hoped-for economic mutations. In taking stock of where I stand on the issue of "radical reform" of planned economics in general and the CMEA in particular, both still moving targets, I have benefited greatly from participation in formal and informal conferences on economic reform. The product has also profited from many informal discus­ sions and exchanges of views among friends and colleagues, including those entrusted with and purely interested in efforts on the overall topic of the study launched from within the broad context of the United Nations, my at times reluctant employer.